Natural gas is one of the principle
sources of energy for many of our day-to-day needs and activities and it is a
valuable resource. It is not surprising that the natural gas industry generates
a great deal of commerce in Pakistan and worldwide. The natural gas industry is
an extremely important segment of the Pakistan's economy. In addition to
providing one of the cleanest burning fuels available to all segments of the
economy, the industry promotes commerce activities.

To fulfill the demand of natural gas in
the country, currently, Pakistan has signed a $7.5 billion deal with gas-rich
Iran paving the way for laying the much-delayed natural gas pipeline that was
originally envisaged to extend up to India.

The 900-kilometre pipeline is expected
to mitigate the crippling energy crisis in Pakistan, which has seriously hit the
country's industry. The initial capacity of the pipeline will be 22 bcm of
natural gas per year, which is expected to be raised later to 55 bcm. The
pipeline will have diameter of 48 inches (1,200 mm).

PRODUCTION OF NATURAL GAS (MMCFD) JULY-MARCH

REGION

2008-09

2009-10

BHP

435.36

524.11

ENI

416.6

434.11

Dewan

40.45

16.12

MGCL

469.07

494.32

OGDCL

920.11

872.1

OMV

467.61

439.13

OPII

54.14

7.54

POL

25.81

24.55

PPL

812.17

794.99

Tullow

12.69

1.61

PEL

30.66

28.19

BP

222.99

246.53

Petronas

15.4

16.26

MOL

63.45

149.2

The Inter-State Gas Systems, a
semi-autonomous body that will take care of Pakistan's interests in the import
of gas through the pipeline, and the National Iranian Oil company signed the
agreement and an operational accord.

The signing of the pacts is a historic
achievement and a milestone towards meeting the energy needs in the country.

The pipeline is being built between
Asalouyeh in southern Iran and Iranshahr near the border with Pakistan and will
carry the gas from Iran's South Pars field. The pact also addresses the issue of
transportation tariff, which will be worked out in line with international
practices.

During 2007, India and Pakistan agreed
to pay Iran US$4.93 per million British thermal units (US$4.67/GJ) but some
details relating to price adjustment remained open to further negotiation. In
April 2008, Iran expressed interest in the People's Republic of China's
participation in the project. Last year, India withdrew from the project over
pricing and security issues, and after signing a civilian nuclear deal with the
United States in 2008. However, in March 2010 India called on Pakistan and Iran
for trilateral talks in May 2010 in Tehran.

Pakistan and Iran declared last year
that they would go ahead with the project bilaterally if India maintained its
stance of not joining the venture.

For both countries Iran and Pakistan,
the pipeline project would be highly beneficial. Iran sees the pipeline not only
an economic lifeline at a time when the United States and its European allies
are trying to weaken it economically, but also an opportunity should the
pipeline be extended to India to create an unbreakable long-term political and
economic dependence of one billion Indian customers on its gas.

Pakistan, for its part, views the
pipeline as the solution to its energy security challenge. Pakistan's domestic
gas production is falling and its import dependence is growing by leaps and
bounds.

By connecting itself with the world's
second-largest gas reserve, Pakistan would guarantee reliable supply for decades
to come. In the country, the supply of gas has exhibited an increase of 1.6 per
cent during July-March 2009-10. The increase in supply owes to higher production
of 1.6 per cent in natural gas during the period under review. Due to this
increase in availability of natural gas, the overall consumption of gas remained
higher during the period.

Furthermore, the consumption of gas by
the household, commercial, fertiliser and transport sectors witnessed growth
during 2008?09. If the pipeline were to be extended to India it could have also
been an instrument for stability in often tense Pakistan-India relations as well
as a source of revenue for Islamabad through transit fees.

Moreover, the United States has urged
Pakistan to reconsider its deal with Iran for building a multibillion-dollar
pipeline intended to bring the much-needed natural gas to the energy-starved
country. The US advised Pakistan to seek other alternatives because of Iran's
dispute with the international community over its nuclear programme. The US
opposed large investments in any Iranian project.

For US administration, the signing of
the pipeline deal is a diplomatic setback, which could undermine its policy of
weakening Iran economically. Unlike the Bush administration, which vocally
opposed the project, the Obama team chose to remain mute, either in order to
facilitate rapprochement with Tehran or due to its reluctance to burden
US-Pakistan relations.

CONCLUSION

Pakistan's need for energy is rising
rapidly. The country is facing severe energy crisis from last two years, which
continues to grow. A land base gas pipeline to fulfill energy needs is many
times cheaper than other available sources to import energy. No doubt, the IP
pipeline is a mutually beneficial project for both the countries.